Question

To record purchases on account, Caleigh’s Company uses the perpetual inventory method and the gross method. On September 11, it purchased $44,000 of inventory, terms 2/10, n/30. On September 13, the company returned $4,000 worth of goods. On September 19, the supplier was paid by Caleigh’s company. What should the company credit on September 19?

Answer 1

Answer:

The company should credited on the Cash account and the Cash Discount Receipt for the settlement of the inventory with 10 days.

Explanation:

The detailed entry will be:

19th Sep

Dr Account Payable               $40,000

Cr Cash                                  $39,200

Cr Cash Discount Receipt    $800

( to record payable settlement and the receipt of cash discount)

Working note: As the company paying with 10 days, the supplier will allow a 2% discount on it net inventory purchase ( 44,000 - 4,000 = $40,000)

Thus, the discount will be 40,000 x 2% = $800 and Cash repayment will be 40,000 x (1-2%) = $39,200.